South Korea recorded a surprise economic contraction in the final quarter of 2025, driven by sharp drops in construction and exports that outpaced modest consumer spending gains.
Bank of Korea data shows GDP fell 0.3 per cent quarter-on-quarter—the steepest decline since late 2022—against forecasts of 0.1 per cent growth. Year-on-year expansion slowed to 1.5 per cent, below the 1.9 per cent predicted and down from 1.8 per cent in Q3.
Full-year GDP grew just 1.0 per cent, the weakest since 2020’s pandemic contraction, despite exports hitting a record $709.7 billion on semiconductor strength amid AI demand.
Construction plunged 3.9 per cent quarter-on-quarter, facilities investment dipped 1.8 per cent, and exports retreated 2.1 per cent, with manufacturing off 1.5 per cent. Private consumption rose 0.3 per cent and government spending 0.6 per cent, offering limited relief.
A November U.S. trade deal with President Lee Jae Myung and Donald Trump secured $150 billion for American shipbuilding and cut car tariffs to 15 per cent from 25 per cent. Yet new 25 per cent U.S. tariffs on AI chips threaten exports; Lee downplayed them on Wednesday, saying the costs would likely be passed on to American consumers.
Inflation eased to 2.1 per cent last year, aligning with the central bank’s target, which held rates at 2.5 per cent amid a won slump of over 6 per cent since July. The government now forecasts 2 per cent GDP growth for 2026, buoyed by AI prospects despite trade risks.